Are you eligible for R&D tax relief?

According to figures from the Office for National Statistics, businesses have never been more innovative, with research and development (R&D) spending reaching a record high of around £23.7 billion in 2017.

That's an increase of £1.1bn, or 4.9% on 2016.

Unfortunately, a large number of companies are missing out on the tax relief they're entitled to on this spending - simply because they don't realise they could be eligible.

Types of relief

There are two different types of R&D tax relief, which can be claimed depending on the size of your business.

SME R&D relief

R&D tax relief for SMEs is available for businesses with less than 500 staff, and a turnover of under €100 million or a balance sheet total of less than €86m.

The relief allows businesses to deduct an extra 130% of their qualifying costs from their yearly profit before tax. This works on top of the normal 100% deduction, providing a total deduction of 230%.

If your company is loss-making, you may be able to claim a tax credit worth up to 14.5% of the surrenderable loss.

R&D expenditure credit

This credit is calculated at 11% of the company's qualifying R&D expenditure, and can be claimed on staff costs, subcontractor costs and consumable items.

This can also be claimed by SMEs that have been subcontracted to do R&D work by a large company - if you can't claim SME R&D relief, you may be able to claim the RDEC instead.

Speak to us and we can check if your business is eligible for either R&D tax credit.

What counts as R&D?

Figuring out whether your project meets HMRC's definition of R&D is a tricky area, and for some business owners the complexity can be off-putting.

It's well worth finding out if you can make a claim, though, as the rewards can be substantial.

According to HMRC, R&D relief can generally be claimed on "innovative projects in science and technology". This could include developing new products, processes or services, or improving existing ones.

This isn't limited to laboratory-based research, and can include fields like software development.

Here are a few questions to think about before you make a claim for R&D relief.

Did you look for an advance in the field?

This sounds fairly simple, but there's an important distinction to make - did you look for a way to advance a scientific or technological field overall, or just to advance knowledge in your own business?

What kind of uncertainty stood in the way?

You'll need to be able to explain how your advancement was not publicly known to be feasible before your work on it.

This includes ‘system uncertainty', which refers to the complexity of combining existing elements - for example, working out the best way to assemble the components of an electronic device.

How did you try to overcome this uncertainty?

You'll also need to describe the research, testing and analysis you needed to undertake to resolve uncertainty.Think about the steps you took in your project, and the successes and failures you had along the way.

Could it easily be worked out by a professional?

If a competent professional working in the field could easily solve the problem you were working on, it doesn't count as R&D.

You could demonstrate this by showing how other attempts failed, or by showing that your staff members are professionals in the field, and asking them to explain the uncertainties you faced.